Question
State the advantages of 'cost plus' method of pricing.

Answer

Advantages of cost plus pricing
  • Biggest advantage of this is that company knows exactly the amount of expenditure that has incurred on making a product and therefore they can add profit margin accordingly which helps in achieving the desired revenue for a firm. So, for example if a company has incurred expenses of 1000 and they want to earn profit margin of 10% than the company will sell the product at 1100.
  • It is the simplest method to decide the price for a product because one has just to add up all the cost and then add profit which you want to earn which will give the price for a product.
  • Since the company is using its own data for deciding cost which makes it easier for a company to evaluate the reasons for escalations in expenses and therefore it can take corrective action immediately.

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